Indian markets plunged nearly 3.5% on Monday as disappointment over the stimulus package and soaring coronavirus infections prompted investors to dump stocks.
The BSE Sensex ended at 30,028.98, down 1,068.75 points, or 3.44%, while the 50-share index Nifty closed at 8,823.25, down 313.60 points, or 3.43%. The India volatility index rose 7.58% to close at 40.90, reflecting renewed investor anxiety.
After Prime Minister Narendra Modi announced on 12 May a ₹20-trillion stimulus package and the goal of national self-reliance, the government rolled out a series of measures addressing small businesses, migrant workers, the farm sector, and rural jobs, among others.
However, analysts and broking companies said that the stimulus broadly does not address the urgent problems of weak consumption and an unfolding humanitarian crisis.
Foreign institutional investors had invested $1.84 billion in India in May until Tuesday when Modi announced the package. In the past week, they have sold shares worth $785.74 million, leading to a 4% fall in stock markets.
According to Deepak Jasani, head of retail research at HDFC Securities, Indian indices ended lower for the third straight day on Monday, contrary to the trend in Asian and European markets, as the stimulus package disappointed businesses and investors. The extended lockdown and jump in covid-19 cases also dampened spirits, he added.
Analysts said providing credit support and guarantees alone does not boost consumption.
The markets are widely expected to see more pain ahead, they said.
While the stimulus measures hold long-term promise, insufficient steps to boost demand may have disappointed investors after the recent market rally, said securities firm CLSA. It said the measures may be creating long-term changes in some other sectors, but this may not be seen as enough to solve the immediate challenges from covid-19.
“Almost no measures (like tax cuts) to create a meaningful rise in personal disposable income and provide a more immediate and much-needed boost to demand will be seen as a disappointment, in our view," said CLSA.
Economists at Nomura said the government has aimed to achieve maximum bang for minimum buck, with most of the relief either regulatory in nature or reflecting in its contingent liabilities rather than explicit budgetary support.
“As a result, the package may fall short of mitigating the near-term existential crisis for businesses and workers, but is better designed to improve India’s medium-term growth potential and attract long-term risk capital," said Nomura.
Analysts at UBS do not see an imminent sovereign rating downgrade, but said that an outlook downgrade (stable to negative) cannot be ruled out. “Considering Moody’s ranks India at one notch above investment grade (with a negative outlook), a rating downgrade to lowest investment grade is still possible," UBS said.
Motilal Oswal Financial Services said the fiscal support offered to economic participants severely hit by covid-19 could have been better.